Andrew Carnegie—one of the richest people to have ever lived—was troubled about the potential effects of his enormous wealth on one particular constituency: his heirs. He opined that a parent leaving their child “enormous wealth generally deadens the talents and energies of the child, leading to a less useful and less worthy life” than they otherwise would have.
Mr. Carnegie’s anxiety raises two questions: Does wealth actually lead to greater happiness for the very wealthy? And, does inheriting wealth—versus earning it yourself—play a role in how happy that wealth makes us?
The relationship between money and happiness has been studied for decades, and typically shows that money matters for well-being, but with diminishing returns: the difference in happiness between people with incomes of $50,000 and $75,000 is larger, for example, than between people with incomes of $75,000 and $100,000. The more we have of it, it seems, the more money wears off. Indeed, research by Nobel laureates Daniel Kahneman and Angus Deaton suggests that the happiness benefits of increased income diminish around $75,000—in part because increases beyond that point likely don’t exert as large an impact on people’s ability to live comfortably.
But nearly all of this existing research comes with one caveat: Millionaires, who are not as motivated to complete surveys as people with average incomes, have been underrepresented in the results. By contrast, our study is the first to have a large sample of millionaires. With our colleagues Tianyi Zheng at the University of Mannheim and Emily Haisley at BlackRock, we surveyed a financial institution’s high-net-worth customers—a sample of more than 4,000 millionaires—about their wealth and happiness.
Such a large group potentially makes the data more accurate as to how wealth influences happiness among the very wealthy—who have been underrepresented in past studies. It also gave us the ability to explore whether the accumulation of dozens or hundreds of additional $25,000 sums might push the needle toward real differences in happiness.
Our respondents answered questions about their happiness with their life in general, and about their current net worth, which we calculated as the total value of their savings, investments and assets, minus any debt.
So, do many $25,000s add up? The very wealthy in our sample—respondents who reported having a net worth of roughly $10 million or more—reported greater happiness than those with a net worth of “only” $1 million or $2 million. The effect is significant, but small, with the very wealthy roughly one-quarter of a point happier on a 10-point scale. Additional millions are associated with additional happiness, but not in life-changing magnitude.
We also explored whether the manner in which wealth was acquired predicted our millionaires’ happiness. Does the well-being that people derive from their wealth depend on whether it was earned or inherited?
Our respondents also reported the primary source of their wealth as either earned, which could mean through investing, business profits, wages and bonuses; or unearned, through inheritance, for example, or marrying into wealth. Although increased wealth was associated with greater happiness for both groups, those who earned their wealth reported significantly greater happiness than those who primarily inherited or married into it. Of course, there are likely other differences between people who earned versus inherited their wealth that may contribute to these different levels of happiness, but these results do offer support for Carnegie’s conjecture.
Taken together, our research suggests that the very wealthy are moderately happier than the “regular” wealthy, and that the manner in which wealth is acquired—earning or inheriting it—influences the happiness derived from that wealth.
Can millionaires extract more happiness from their wealth? Carnegie came up with one solution: He donated the vast majority of his fortune to charities, foundations and universities during the last few years of his life, keeping it from his heirs in an apparent effort to lead them to useful, worthy lives. And his solution has greater wisdom as well: Because research shows that giving to others leads to greater happiness than spending on oneself, Carnegie was also employing his wealth in a manner likely to maximize his own happiness.
His strategy has caught on: More than 170 millionaires and billionaires have signed on to The Giving Pledge, a campaign started in 2010 by Bill Gates and Warren Buffett to encourage the wealthy to contribute a majority of their wealth to philanthropic causes. Our research suggests that this strategy has benefits not only for the recipients of that charity, but for the wealthy and their heirs as well.